Purple Company makes and sells computer printers. It has taxable income of $1,300,000 before taking into account charitable contributions. The company contributed a parcel of unused land to an art museum to be used to construct a branch museum. The land had a FMV of $50,000 and a basis of $30,000. The company also donated 1,000 of its computer printers to the local community college for use in student computer labs. The printers have a FMV of $200 each and a basis of $120 each. Determine the taxable income of Purple Company and its charitable contribution carryforward, if any.
What will be an ideal response?
Charitable contributions are limited to 10% of taxable income before charitable contributions. Subject to the 10% limitation, the land contribution is equal to the FMV of $50,000. The printers are ordinary income property. Thus, the deduction is limited to their basis of $120,000. Total charitable contribution is $170,000.
Purple Company can take a charitable contribution of $130,000 (10% of $1.3 million). It will have a charitable contribution carryforward of $40,000. Taxable income is $1,300,000 - $130,000 = $1,170,000.
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